Hedge Fund: Banish the (Word) ‘Taper’

All are on this year’s closely-followed “banished words” list from Lake Superior State University, and one hedge fund has another suggestion for the verbal chopping block: Taper.

The $3.5 billion Rimrock Capital Management, LLC hedge fund firm opened its annual investor letter with a tirade against taper, the wonky descriptor for the Federal Reserve’s gradual reduction of its stimulus program.

Rimrock CEO Paul Westhead, a veteran of asset manager Oaktree Capital Management, L.P. and Pimco, wrote in the letter dated Thursday that the term was “egregiously overused.”

“In addition to the straight-forward use of the word, there grew a number of iterations, including ‘Sep-taper’ (a nickname for the month when tapering was originally rumored to begin), ‘taper-tantrum,’ and now with the discourse surrounding the gradual decline of the program…’taper the taper.’ Enough already!” Mr. Westhead wrote.

Taper was not the only concept Mr. Westhead found difficulty with. He was also troubled by the rise of bond mutual funds, which he wrote could be forced to sell assets too quickly under the pressure of daily withdrawals.

“Our experience has taught us that liquidity is one of those commodities that is in great abundance when you don’t need it, but tends to disappear the moment that you really need it,” he wrote.

“You cannot take a bunch of potentially illiquid securities, such as high yield or emerging market bonds, put them in a mutual fund or ETF structure, say ‘abracadabra,’ and then make them all permanently liquid,” he added.

Rimrock, based in Irvine, Calif., is a credit-focused hedge fund firm. Its flagship Rimrock High Income PLUS Fund returned 9.5% last year, the letter indicated. Mr. Westhead declined to comment beyond the letter.